Not So Smart – Why Smart Telecom was Doomed from the Outset

When I heard that Smart Telecom was entering the Tanzanian mobile market when it did my impression was – ‘Oh, those poor fellows!’ One had to admire their guts or feel pity for them. I was more inclined to do the latter.

A decade before their entry the market had undergone a period of rapid infrastructure expansion which was capped by a cut-throat price war – so bloody that the regulator had to step in. And just as it was being rationalised, Smart appeared! Very bold.

The strategy which Smart adopted was not novel, since it was being promoted extensively by the likes of Huawei and ZTE (whose business force them to keep developing new opportunities even when established operators have lost appetite for new investments). Using the strategy, the new entrant would seek to carve some market share for itself from the underserved, low-income and cost-conscious market segment. Concurrently, the operator would try to poach subscribers from incumbents by luring them with innocuous deals such as mobiles which support two operators.

When Smart was going live, another firm – Halotel – from 8,000km away, was also planning its entry in this crowded market. Five years later the two firms have had very divergent fates: while Smart’s journey ended as inexplicably as it began, Halotel has managed to carve a solid space for itself where it now boasts a healthy 10% of the market share.

Let’s compare the paths taken by the two firms – Smart and Halotel – so as to learn how not to enter an established mobile telecom market.

Strategic Mismatch

Firstly, Smart’s strategy was geared towards achieving a competitive advantage through low-price market differentiation, but it was not properly positioned to capitalise on that strategy. The incumbents – Vodacom, Airtel, Tigo, and Zantel – had extensive nationwide networks developed over many years; Smart had none. They had secured excellent frequencies – including at the lucrative 600-800 MHz range for LTE, Smart had 2.3GHz and above, especially the notorious 3.5GHz frequency, a serious liability for any new entrant.

Three Markets Strategy

Secondly, Smart was overstretched by its three-markets strategy. It probably looked like a good idea on paper, but I am not sure why, out of six EAC countries, someone picked the Tanzania, Uganda and Burundi combination for a cross-border operation. Moreover, with a budgeted capital of $300m for the three markets, Smart clearly didn’t have the resources to execute its strategy effectively across all markets. And it’s unlikely that all of this cash was ever made available to the management, given that the Smart’s struggles started quite early, especially with network blackouts in Uganda (most probably due to suppliers switching off the internet). Finally, it is quite telling that after its exit in both Ugandan and Tanzanian markets Smart has maintained its operations in Burundi where it had achieved some degree of traction. Probably that was a measure of its true strength and strategic capability, wasn’t it?

The Halotel Problem

Thirdly, Smart failed to handle ‘the Halotel problem’. At its peak Smart had 1.8m subscribers, around 4% of the market share. Achieved quite early after its launch, that wasn’t a mean feat. But subsequent records reveal that Halotel expanded its subscriber base mainly at the expense of Smart. It was easier for Smart to carve a space for itself in the larger market, but when a competitor started focussing on its space, it had no response.

To compete, Smart had to either build a sizable network in a few years – a major undertaking – or lease tower and transmission capacities from others. Smart went for a mishmash of both approaches and its choices were at best suboptimal. It also went for a ‘yale yale’ strategy and failed to achieve a strategic position needed to give it a low-cost competitive advantage – thus failing to sustain a low-price market differentiation needed for its success. Finally, limited by increased competition, liquidity and strategic options, its numbers continued to dwindle until it had to give room.

In business, market performance is the only true reality.

Alternatively, Halotel entered the Tanzanian market with significant planned capital – one billion dollars. This gave Halotel a measure of flexibility regarding its strategic options. Next, it opted to develop its own nationwide infrastructure using overhead fibre cable and low-cost steel masts, the hitherto ignored options by other operators. With these ‘innovations’ in network implementation, Halotel managed to keep both its CAPEX and OPEX low while giving itself a strong competitive edge across the nation (with its network coverage and huge bandwidth).

Halotel’s also devised a more compelling data strategy, better than the incumbents’ in my opinion. Operators in Tanzania have been playing quite safe as far as data strategy is concerned – much to my irritation – but Halotel showed that innovation is not only possible but can lead to significant rewards.

The Smart Telecom’s story is a great lesson in strategic planning.

The Smart Telecom’s story is a great lesson in strategic planning. While it shows that this crowded market could have indeed accommodated another operator, or two, but the market punished its strategic failures mercilessly.

In business, market performance is the only true reality. Those firms which are contemplating entering into this wild-west market – such as Azam Telecom – should take notes.

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We have made our arguments. Now it is time for you to make yours. Have we done justice to Smart Telecom? Are there facts that we ignored? Could Smart be saved? Can Halotel do better? We want to hear from you. Please comment, share, and like the article.